Commercial Lease Calculator Formula

Understand the math behind the commercial lease calculator. Each variable explained with a worked example.

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Formulas Used

Year 1 Monthly Total

monthly_total_yr1 = total_annual_yr1 / 12

Year 1 Annual Total

annual_total_yr1 = total_annual_yr1

Annual Base Rent

base_rent_annual = annual_base_rent

Annual NNN Charges

nnn_annual = annual_triple_net

Free Rent Savings

free_rent_savings = free_rent_value

Effective Rent Per Sqft

effective_rent_psf = square_footage > 0 ? (total_base_over_term - free_rent_value + annual_triple_net * lease_term_years) / (square_footage * lease_term_years) : 0

Variables

VariableDescriptionDefault
square_footageRentable Square Footage(sqft)3000
base_rent_psfBase Rent (per sqft/year)(USD)25
cam_psfCAM Charges (per sqft/year)(USD)8
insurance_psfInsurance (per sqft/year)(USD)2
tax_psfProperty Tax (per sqft/year)(USD)5
annual_escalationAnnual Rent Escalation(%)3
lease_term_yearsLease Term(years)5
free_rent_monthsFree Rent Months2
annual_base_rentDerived value= square_footage * base_rent_psfcalculated
annual_camDerived value= square_footage * cam_psfcalculated
annual_insuranceDerived value= square_footage * insurance_psfcalculated
annual_taxDerived value= square_footage * tax_psfcalculated
annual_triple_netDerived value= annual_cam + annual_insurance + annual_taxcalculated
total_annual_yr1Derived value= annual_base_rent + annual_triple_netcalculated
free_rent_valueDerived value= annual_base_rent / 12 * free_rent_monthscalculated
total_base_over_termDerived value= annual_escalation > 0 ? annual_base_rent * ((pow(1 + annual_escalation / 100, lease_term_years) - 1) / (annual_escalation / 100)) : annual_base_rent * lease_term_yearscalculated

How It Works

Commercial Lease Types

Commercial leases come in several structures that determine who pays operating expenses.

Common Structures

  • Gross Lease: Landlord pays all operating expenses; rent is all-inclusive
  • Modified Gross: Tenant pays some expenses (often utilities and janitorial)
  • Triple Net (NNN): Tenant pays base rent + CAM + insurance + property tax
  • Absolute Net: Tenant pays everything including structural repairs

    • Key Terms

  • CAM (Common Area Maintenance): Shared building costs (cleaning, landscaping, management)
  • Escalation: Annual rent increase (fixed percentage or CPI-based)
  • Free Rent / Concession: Rent-free months at lease start
  • TI Allowance: Landlord contribution toward tenant improvements

    • Evaluating a Lease

    Always calculate the effective rent per square foot over the full term, accounting for escalations, free rent, and TI allowance.

    Worked Example

    3,000 sqft NNN lease at $25/sqft base rent, $8 CAM, $2 insurance, $5 tax. 3% annual escalation, 5-year term, 2 months free rent.

    square_footage = 3000base_rent_psf = 25cam_psf = 8insurance_psf = 2tax_psf = 5annual_escalation = 3lease_term_years = 5free_rent_months = 2
    1. 01Annual base rent: 3,000 x $25 = $75,000
    2. 02Annual CAM: 3,000 x $8 = $24,000
    3. 03Annual insurance: 3,000 x $2 = $6,000
    4. 04Annual tax: 3,000 x $5 = $15,000
    5. 05Annual NNN charges: $24,000 + $6,000 + $15,000 = $45,000
    6. 06Year 1 total: $75,000 + $45,000 = $120,000 ($10,000/month)
    7. 07Free rent value: $75,000 / 12 x 2 = $12,500
    8. 08Total base rent over 5 years (with escalation): approximately $397,728

    Frequently Asked Questions

    What is the difference between NNN and gross lease?

    In a NNN lease, you pay base rent plus your share of property taxes, insurance, and CAM separately. In a gross lease, all expenses are included in one rent figure. NNN rents appear lower but the total occupancy cost may be similar. NNN is more common in retail and industrial.

    Can CAM charges increase?

    Yes. CAM charges are typically reconciled annually against actual costs. If building operating costs rise, your CAM charges increase. Look for CAM caps (e.g., 5% annual increase cap) in your lease to limit exposure. Audit rights are also important.

    What is the difference between rentable and usable square footage?

    Usable square footage is the space within your walls. Rentable square footage adds your proportionate share of common areas (lobbies, hallways, restrooms). The load factor (typically 10-20%) is the difference. You pay rent on rentable sqft, not usable.

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